The pharmaceutical industry is complex, with various segments such as innovator products, generics, branded generics, and API. Indian companies are making headway globally, and understanding the industry’s intricacies is crucial for those seeking opportunities. Innovator companies undertake significant risks, with only 8 out of 100 molecules crossing the finish line, and patent protection is the incentive for undertaking this risk. Roche, a leading innovator, reported a 30% PAT margin in FY24, with R&D expenses at 20% of sales.
Indian pharma is sustained by generics, but companies like Sun Pharma and Glenmark Pharma are making modest beginnings in innovation. Sun Pharma’s innovative medicine segment has 11 products, including Ilumya, which reported sales of $680 million in FY25. Glenmark Pharma’s Ichnos Glenmark Innovation (IGI) recently entered a licensing agreement with AbbVie for its ISB 2001, receiving $700 million in milestone payments.
The generics business is dependent on the level of competition, with prices declining sharply as the number of competitors increases. Branded generics, however, offer higher value, with companies like Mankind Pharma and Torrent Pharma generating significant revenues from their branded portfolios. Complex generics, such as Lupin’s generic Spiriva, hold a value proposition in regulated markets, with strong revenue streams and above-average margins.
Biosimilars are a growing segment, with companies like Biocon developing portfolios. The biosimilar approval process involves clinical trials, increasing the cost of development to $200-300 million. CRDMO (contract research and development and manufacturing outsourcing) is another emerging segment, with companies like Divi’s Labs and Anthem Biosciences securing a portion of the innovators’ drug development process.
The API business is largely commoditized, with prices dependent on tonnage. However, high-potent APIs and complex manufacturing processes can fetch higher margins. India has focused on API development with its PLI schemes, and companies like Aurobindo Pharma are establishing API facilities.
For investors, a strong branded generic base supplemented by a wide innovator portfolio is essential for trail-blazing growth. Complex generics and CRDMO are emerging sectors, with China+1 and the US Biosecure Act providing tailwinds. The right mix of business segments and prospects is crucial for growth, and understanding the industry’s intricacies is essential for those seeking opportunities in the pharmaceutical sector.
Key takeaways include:
* Innovator companies undertake significant risks, but patent protection provides an incentive.
* Indian pharma is sustained by generics, but companies are making modest beginnings in innovation.
* Branded generics offer higher value, with companies generating significant revenues from their branded portfolios.
* Complex generics hold a value proposition in regulated markets, with strong revenue streams and above-average margins.
* Biosimilars are a growing segment, with companies developing portfolios.
* CRDMO is an emerging segment, with companies securing a portion of the innovators’ drug development process.
* The API business is largely commoditized, but high-potent APIs and complex manufacturing processes can fetch higher margins.